FTC under fire as credit bureaus sell consumers' data
But the boom - and now bust - of subprime mortgages is fueling criticism that the FTC under Majoras has given Experian, Equifax and TransUnion too much latitude to profit from the sale of credit data to lenders and consumers.
"Federal agencies that are supposed to be looking out for the consumer are really protecting the companies that do bad things the agencies were set up to prevent," says political commentator Robert Kuttner, author of "The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity."
In February, the National Association of Mortgage Brokers lambasted the FTC for giving the credit bureaus tacit approval to keep selling listings - called "trigger lists" - containing personal and financial data of prospective borrowers. Some unscrupulous lenders used trigger lists to contact people who recently filled out a loan application, and then pitched them subprime mortgages, higher-priced loans aimed at people with spotty credit histories but also marketed to borrowers with good credit.
Most applicants never knew the bureaus were placing them on trigger lists and were surprised to be deluged by phone calls and e-mails for subprime loans. These too-good-to-be-true offers came from brokers who skirted rules requiring traditional lenders to make firm offers only in writing.
With the meltdown of subprime loans, such offers have declined. But now privacy and consumer advocates are calling for the FTC to do more to bring order to the profusion of websites selling credit scores and credit services derived from credit data sold exclusively by the Big Three. A USA TODAY story last month revealed how a marketing free-for-all awaits anyone who ventures online to buy credit data.
"Credit scores are vital in determining if you can even afford to refinance your problem loan, yet there's tremendous confusion out there," says privacy advocate Evan Hendricks, author of "Credit Scores and Credit Reports: How the System Really Works, What You Can Do."
Platt Majoras left her partnership at law firm Jones Day in 2004 to head the FTC. Experian, the largest of the Big Three bureaus, is one of Jones Day's corporate clients. Its annual revenue tops $3 billion.
'Scrupulous' about ethics
Platt Majoras rebuts consumer advocates and other critics who say she has been soft on Experian, Equifax and TransUnion during a period when the bureaus helped lenders flush out prospects for subprime loans and moved aggressively into selling credit data to consumers over the Internet.
"We've been tough on the industry and strong in standing up for consumers," she says.
Platt Majoras says she is "intensely scrupulous" about ethics. For instance, she recused herself from an August 2005 investigation that resulted in Experian paying a $950,000 fine for using deceptive sales practices. However, she confirmed she did not recuse herself from voting to approve a subsequent $300,000 fine Experian paid in February for a repeat offense.
In an April 2006 memo, FTC ethics officer Christian White cleared Platt Majoras' non-recusal, citing the fact that her husband, John Majoras, also a Jones Day partner, agreed in January 2006 to forgo his "equity share" of the law firm's annual profit. John Majoras said in an interview that he voluntarily agreed to a "material change" in his salary to remove "any type of appearance of any type of conflict."
Conflict questions persist. Last week, privacy advocates petitioned Platt Majoras to recuse herself from reviewing antitrust concerns raised about Google's merger with Internet ad agency DoubleClick, because Jones Day represents DoubleClick. White advised that no conflict exists, because Jones Day has not formally come before the FTC on behalf of DoubleClick.
Meanwhile, privacy advocates also remain concerned that Platt Majoras has done little to stem the credit bureaus' escalating sales of trigger lists. "The FTC has become the lapdog for the data industry, instead of being the public's watchdog," says Jeff Chester, executive director of the Center for Digital Democracy, which last month asked the FTC to investigate companies that buy trigger lists and sell them to subprime lenders.
Introduced by Experian in 2005, a basic trigger list includes the names and contact information of people who've recently applied for a mortgage. Deluxe lists also supply credit scores, credit card debt summaries and estimates of the equity in real estate owned by prospective borrowers. By late 2006, consumers were complaining to the FTC about phone calls from subprime lenders; some filed lawsuits accusing lenders of using trigger lists, coupled with bait-and-switch tactics, to lure them into onerous loans.
Protection called 'very weak'
The National Association of Realtors expressed concern to FTC officials that selling information about people shopping for loans could enable privacy invasions, predatory lending and identity theft, too, says Mary Trupo, NAR's public issues director.
The credit bureaus countered that trigger lists gave borrowers more choice. "Mortgage triggers are like going to the mall, where you can shop for the best possible deal, easily and efficiently," says Stuart Pratt, CEO of the Consumer Data Industry Association, the bureau's lobbying arm.
Realtors and brokers of traditional loans, such as Ginny Ferguson, co-owner of Heritage Valley Mortgage in Pleasanton, Calif., lobbied the FTC to ban trigger lists and compel subprime lenders to make loan offers only in writing, not over the phone or by e-mail. Instead, the FTC in February posted on its Web site a "consumer alert" describing how trigger lists functioned and advising consumers how to "opt out" of trigger lists or get placed on "do-not-call" lists.
The advisory did little to slow trigger lists or subprime loans, says Ferguson, a board member of the National Association of Mortgage Brokers. She calls the alert "a very weak method of protecting consumers against invasion of privacy."
The FTC official who wrote the alert, Joel Winston, associate director of privacy and identity protection, says the agency did all it could. "We have no evidence to suggest a violation of law," says Winston.
Platt Majoras says she agrees with Winston and endorses his view of the limits of her agency's power to stop predatory marketing. "We've not heard that the FTC simply is not doing enough with respect to the credit-reporting bureaus," she says. "If people feel that way, then I do want to hear about it."
Consumer advocates and credit consultants say the FTC's hands-off approach to trigger lists - which the bureaus continue to sell - and its failure to do more to stem deceptive marketing of credit services have already harmed millions. "Consumers get confused, and with confusion comes vulnerability," says Madison Ayer, co-founder of Denver-based Veracity Credit Consultants. "How is that good for consumers? It's not."
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